| SAN FRANCISCO
SAN FRANCISCO CVS Caremark Corp (CVS.N) said on
Tuesday it would buy its U.S. West Coast rival Longs Drugs
Stores Corp LDG.N in a $2.54 billion deal that will allow it
to expand in states like California and broaden the reach of
its prescription services.
Shares in CVS fell nearly 7 percent on the news.
The acquisition of Longs' 521 stores will add to CVS's
presence in California and will give it a leading position in
Hawaii, where it doesn't operate. Longs' stores are also
located in Nevada and Arizona.
CVS will pay $71.50 per share for Longs, including its Rx
America subsidiary, a prescription benefits management services
company with over 8 million members. Longs shares closed at
$54.04 before the news on Tuesday, but surged nearly 30 percent
in extended trading on the deal.
CVS said it would finance the deal, which also includes up
to $360 million in debt, with a $1.5 billion bridge loan
facility, together with existing cash. The deal is expected to
be completed in the fiscal fourth quarter of 2008.
The deal is expected to crimp earnings per share at CVS in
its first year, but add to earnings beginning in 2010, the
CVS is expected to gain cost savings of approximately $100
million in 2009 and approximately $140 million to $150 million
in 2010 from purchasing savings and lower selling, general and
"This transaction provides tremendous benefits to CVS by
accelerating our expansion in very attractive drugstore markets
and strengthening our geographic reach," CVS Chairman and Chief
Executive Thomas Ryan, said in a statement.
Woonsocket, Rhode Island-based CVS Caremark, one of the
largest U.S. drugstore chains, said it would have taken at
least ten years or more to develop Longs' store base
The company was formed when drugstore operator CVS acquired
pharmacy benefits manager Caremark for $24 billion in March
CVS and its main competitor, Walgreen Co WAG.N, have been
expanding beyond the traditional drugstore business in recent
years in order to reap more of the money spent on other areas
of health care by an aging U.S. population.
That foray into a wider array of health-care operations has
helped mitigate slowing growth of drugstores sales as the U.S.
CVS said that Longs' substantial presence in Southern
California will provide a foundation for "significant" future
growth in that state. Longs is based in Walnut Creek,
The deal also brings CVS real estate valued at more than $1
billion for some 200 Longs' store locations.
Shares of CVS fell 6.7 percent in extended trade to $35.50
after closing at $38.05 on the New York Stock Exchange, while
shares of Longs rose 29.5 percent after-hours to $70.